Two AI Stocks to Buy and Hold for the Next Decade

In light of the recent downturn in the market, many high-quality tech stocks focused on artificial intelligence (AI) are now available at better prices. This presents a prime opportunity for investors to acquire shares of these leading companies.

Let's explore two AI stocks that are worth considering for long-term investment over the next decade.

1. Alphabet

While Alphabet (GOOGL) is famously recognized for its Google search engine, it boasts an extensive portfolio of businesses. Google remains its most valuable asset, holding close to a 90% share of the global search market, making it the largest digital advertising platform worldwide. Numerous AI-driven competitors aspire to challenge Google, but none come close to matching Google's user base or advertiser network.

Furthermore, Alphabet owns YouTube, which ranks as the most popular streaming service and is the fourth largest digital advertising platform globally by itself. YouTube's business model, which involves sharing ad revenue with content creators, allows for reduced upfront costs on content, resulting in robust profitability.

Alphabet is significantly accelerating its focus on AI. The company oversees one of the largest cloud-computing platforms in the world, allowing clients to develop tailored AI models and applications through its Vertex AI platform. This platform enables customers to initiate projects using foundational models like Gemini. In fact, Alphabet is also implementing Gemini to enhance search results and improve AI Overviews.

The upcoming AI Overviews may create new monetization avenues, as historically, Google has displayed ads on only about 20% of its search queries, with cost-per-click being a primary revenue generator. Alphabet can utilize diverse ad formats, such as display and video ads via AdSense, to potentially monetize its AI Overviews. The company also operates the Gemini generative AI chatbot, which is steadily catching up to competitors and showing improvement. In specific AI areas like text-to-video generation, Alphabet is ahead of the curve, thanks to its Veo 2 platform's training on YouTube videos.

Moreover, Alphabet is at the forefront of autonomous driving technology through its Waymo division, currently the only entity offering paid rides in the U.S. Waymo is expanding to new cities and gaining traction in established markets like San Francisco, as users become more familiar with the technology. Although Alphabet needs to lower operational costs, it is clearly a leader in this burgeoning sector.

Looking ahead, Alphabet is also pioneering advancements in quantum computing with its Willow chip. Last year, the company made significant progress in addressing the error-prone nature of quantum computing at scale. While practical applications are still on the horizon, this illustrates Alphabet's position as a technology innovator. The capacity to adapt and innovate is essential for any tech company aiming to be a reliable long-term investment.

2. Microsoft

Similar to Alphabet, Microsoft (MSFT) has carved out a strong presence with a diverse mix of market-leading businesses, all closely linked to AI. The company was among the first major tech firms to invest in AI, making a significant investment in OpenAI, the creator of ChatGPT, and forming a partnership with them.

By leveraging OpenAI's advanced models, Microsoft has propelled its cloud platform, Azure. This platform equips clients with the necessary infrastructure to train their own AI models while also offering AI-driven analytics, security, and management tools. Although Microsoft has faced limitations in capacity, it is heavily investing in data centers to meet the growing demand.

Additionally, Microsoft has infused AI assistants, also known as copilots, throughout its offerings. The primary focus has been on enhancing its Microsoft 365 subscription service, which includes popular productivity tools like Word, Excel, and PowerPoint. The potential growth in user productivity with these copilots presents a significant revenue opportunity as Microsoft charges a subscription fee of $30 per month per enterprise user. Recently, the company also introduced new AI-powered security agents, expanding its market for AI services.

While Microsoft has relied on OpenAI, it is not remaining static. Reports indicate that the company is developing in-house AI reasoning models alongside exploring partnerships with other third-party models. This strategic move will help reduce dependency on OpenAI and enable Microsoft to harness its own models for future projects.

Currently, Microsoft and OpenAI's partnership is set to continue until 2030, with a strong collaborative relationship. However, having its internal AI models in development positions Microsoft advantageously for the future.

Microsoft has also created its first AI model for video gaming, named Muse. This model aims to expedite the game development process and potentially preserve classic games for current hardware. Gaming is a crucial sector for Microsoft, encompassing its Xbox brand and gaming studios such as Activision Blizzard. Observing how Microsoft integrates AI into its games could yield exciting developments.

With consistent growth driven by its AI initiatives, the prospects ahead make Microsoft an appealing investment choice. The company's adaptability over time—transitioning to a subscription model for software and adopting AI ahead of most major tech players—highlights its proactive approach.

Overall, Microsoft's ability to plan for the future and adapt to changes makes it a stock worth considering for long-term holding.

AI, Investing, Tech